Tuesday, July 24, 2007

Free trade isn't even free

When people make the argument for free trade one of the things that they often point out is that people have been trading with each other for centuries and that often this trade has enriched all of the countries participating in it. Chinese goods that couldn't be made in Europe would be exchanged for European goods that couldn't be made in China. Middle Eastern traders traded with the nations along the horn of Africa. Russians traded with Central Asians and in turn traded with Western European countries, supplying goods like honey that Russia specialized in. However, there's an essential difference between that kind of trade and the free trade that's being promoted now, and it can be reduced to one word: subcontracting.

You see, although Chinese companies make a lot of the goods consumed in the U.S. they don't develop them their selves. What happens is that an American firm does the research, tests the product, turns it into a saleable item, then finds a factory that has the equipment and the skill to implement and produce the product. The product is made according to the specifications of the company and then shipped back to the United States. The Chinese company is a client of the American company, it's participating in a global scale outsourcing project, and while it can produce all the goods it wants it will never be an independent company designing and producing its own goods for sale as long as it remains linked to the company it subcontracts for.

When you see a garment that says "Made in Vietnam" or "Made in Thailand" it hasn't been produced by a Vietnamese or Thai company acting on its own. And that's not free trade. Free trade, in its positive aspect, depends on companies innovating on their own and marketing their goods to other countries in order to fill unique niches that aren't being filled by other companies.

With subcontracting there's no possibility of innovation except in developing production processes that are more efficient. The large companies that send the plans to the subcontractors and make sure that they're implemented properly, large multinational corporations that make up most of the brand names that we're familiar with in the U.S., are the ones that have permission to truly innovate.

Unless laws governing countries' ability to regulate the companies that do business with them, as well as laws dealing with government sponsored infant industries, are changed from being extremely restrictive to allowing the governments to intervene "free trade" will continue to be about first world countries using third world countries for their benefit and not about countries innovating in order to increase their wealth and to increase the quality and diversity of goods available on the world market.

****on edit: I'm trying to get this article printed by progressive yet not radical media, so some of the sentiments are toned down. Maybe I should point out that outsourcing globally just transfers jobs overseas and doesn't really create a situation where the jobs lost can be easily replaced.

1 comment:

Anonymous said...

interesting... I disagree with you about higher education funding, but I'm with you about free trade not being free trade. The trouble with making people aware of it is that agreements which are undeniably anti-free trade such as NAFTA have the words "free trade" in them. And people buy into it. Probably in much the same way that people bought into the Patriot Act. It must be about patriotism, right? :-/

The truth is that third world countries actually do benefit from the current arrangement, because there is money flowing into their economy that wouldn't otherwise be there. It raises the standard of living, even though that standard is still far below ours, it's a step in the right direction. My main problem with "free trade" these days is that it's being directed by companies lobbying the government, and anyone who knows anything about business, especially big businesses, will tell you that corporations are sometimes the biggest enemies of free trade - they want the tables tilted in their favor. How else would you explain NAFTA? -- tax incentives for companies off-shoring their operations, limits placed on the number and type of safety inspections that the U.S. can do on imported foods from other countries, and Mexican semi-trucks carrying goods into America aren't restricted by the same safety standards that American trucks have to meet. The list goes on.... Just some things to think about. Good luck getting your article published.